Primer
Tariff Reform Program
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1.
What is the Tariff Reform Program?
The Tariff
Reform Program (TRP) is the review/restructuring of the
Philippine tariff system that government undertakes on a
continuing basis to make the tariff structure responsive
to the needs of the economy taking into account changing
patterns in trade and advancements in technology.
So far, four (4) tariff reform programs have been
undertaken since the 1980’s.
2.
What was the rationale behind the first TRP?
In
the 1970’s, industrial and trade policies were biased
towards import-substituting activities which resulted,
among others, in the overprotection of certain local,
domestic market-oriented industries.
Said excessive protection, in turn, led to market
distortions that discriminated against investments in
agriculture and exports and encouraged the production of
finished consumer goods over intermediate and capital
goods.
The
initiative to reform the tariff system came from the
recognition that over two decades of protection through
high tariffs have proved counter-productive rather than
supportive of the country’s development objectives.
Realizing the need for a change in policy to remedy
the situation, government official policy shifted from
emphasis on import-substitution to promotion of exports.
The
government embarked on a medium-term structural adjustment
program starting 1981 with the objective of altering the
basic structure of industry to make it more efficient and
competitive internationally.
The two main instruments of structural adjustment
pursued by government were the Tariff Reform Program and
the Import Liberalization Program.
3.
When was TRP-I undertaken?
What was its coverage?
The
Tariff Reform Program proceeded as scheduled from 1981 to
1985 while the Import Liberalization Program was briefly
derailed by the balance of payments crisis in 1983.
The
tariff review accompanying TRP-I covered all headings from
Chapters 1 to 99 of the tariff schedule.
The tariff modifications were staged over a
five-year period to cushion the impact of the changes on
the various sectors of the economy.
In
the institution of tariff reforms, a review of existing
protective rates was conducted to remove or phase out (a) those which were excessive;
(b) those which had outlived their usefulness; and
(c) where the burden of protection outweighed the
return. The modifications were expected to induce a shift
in the composition of imports of
raw materials from those with advanced processing
to those which are more basic or in crude form.
TRP-I also emphasized inter-industry and inter-sectoral
linkages in the economy.
4.
What was the impact of
TRP-I on the protection
structure?
A.
On Nominal Tariffs
The
tariff band was narrowed from 10% - 100% to 10% - 50%.
As a consequence, the average nominal tariff fell from 42%
in 1981 to 28% at the end of TRP-I.
B.
On Effective
Protection Rates
The
Effective Protection Rate (EPR) is defined as the percentage
excess of domestic value added, made possible by the imposition of
tariffs and other protective measures on the product and its
inputs, over world market value added.
Generally, EPR estimates are used to provide information on
the amount of government-provided protection that an industry
receives.
TRP-I
restructured the system of protection to industries into one less
biased towards any particular industry or industry groups.
Specifically, the objective was to keep industry EPR’s
within a range of 10% - 80% from the then prevailing schedule of
EPR’s which ranged from excessively high to excessively low
levels.
TRP-I
resulted in the overall reduction and evening out of EPR’s
across industries. On
the average, the EPR for primary and agricultural industries
continued to receive a low EPR of 3%.
The EPR for manufacturing industries declined from 66%
(pre-TRP) to 36%.
5.
What was the rationale behind the second TRP?
The
rationale of TRP-II was to reduce the overall level of
protection and disperse
tariff protection within and across industries.
Government was also following through on its policy
of de-emphasizing the role of tariffs in industrial and
trade promotion. The
reforms were aimed at achieving the following: more
efficient resource allocation;
improved access of industry to essential inputs at
lower prices; availability
of more affordable and better-quality goods for consumers;
and enhanced competitiveness of local industries in the
domestic and export markets.
6. What
was the coverage of TRP-II? When was it undertaken?
The
new package of tariff adjustments under TRP-II was
promulgated and signed by the President under Executive
Order (E.O.) No. 470 on July 20, 1991 and became effective
on August
24, 1991.
E.O.
470 incorporated a five-year phase-in period from 1991 to
1995 and transition rates to provide local industries
reasonable time to make the necessary adjustments.
The E.O. covered some 80% of the Tariff and Customs
Code (TCC).
The
number of Harmonized Commodity Classification and Coding
System (HS) lines was reduced by 10%, from 6,193 tariff
lines to 5,561 lines.
This reduction, which made for easier customs
administration, was due to the simplification of tariff
nomenclature (e.g., tariff lines that would
eventually have the same rates of duty were combined into
a single line) but such nomenclature modification adhered
faithfully to the basic text of the international
Harmonized System.
7. What
was the impact of TRP-II on the protection structure?
A.
On Nominal Tariffs
The
final rates under E.O. 470 clustered around four levels:
3%, 10%, 20% and 30%.
Fully 95% of total tariff lines were dutiable at these
rates in July 1995. However,
E.O. 470 imposed duties of zero, 5%, 15%, 25% and 50% on a limited
number of items.
Under
E.O. 470, the average nominal tariff
was reduced from the pre-E.O. 470 level of 28% to only 20%
at the end of the period. Among
the three major industrial sectors, manufacturing
registered the biggest reduction in tariffs, from 27%
before E.O. 470 to only 19% by 1995.
For agriculture, the average tariff declined by 20%, from
the pre-E.O. 470 level of 35% to 28% in 1995.
The more moderate reduction in agricultural tariffs was a
consequence of the decision to protect sensitive agricultural
products by retaining their tariffs at 50%.
E.O.
470 was eventually overtaken by the third tariff reform program.
B. On
Effective Protection Rates
Under
E.O. 470, a substantial decline in the overall average EPR level
was noted, from 25% under the pre-E.O. 470 structure to 19% five
years after when the final duties were implemented. Along with the decline in EPR levels, the
structure of protection also changed.
The
tariff restructuring reduced the bias against agriculture relative
to manufacturing. Specifically, effective rates of protection for
selected manufacturing industries which thrived under a highly
protected regime were reduced to more reasonable levels.
8.
What were the objectives of TRP-III?
TRP-III
further liberalized the trade environment by reducing the
level and spread of tariff rates towards a uniform level
of protection across all sectors. It was aimed at
promoting global competitiveness, simplifying the tariff
structure for ease of customs administration, and
providing a level playing field for local manufacturers vis-à-vis
foreign competition.
As
stated in E.O. 264, the final rate structure under TRP-III
will consist of a uniform tariff rate of 5% by the year
2004, to be reached after a penultimate stage of only two
tariff rates: 3% (for raw materials and intermediate goods)
and 10% (for finished products) in 2003.
9.
When was TRP-III implemented?
The
issuance of E.O. 189 on
July 18, 1994 marked the onset of TRP-III. Among the major E.O.’s issued during this
phase of the reforms were:
E.O. 264 (effective
August 28,
1995) which contained the tariff modifications on
industrial products, E.O. 288 (effective
January 15, 1996) which set in place the tariff
reductions on non-sensitive agricultural products (those
not covered by quantitative restrictions), and E.O. 313
(effective May 7, 1996) which provided interim tariff
protection to sensitive agricultural products.
Such protection was deemed necessary in view of the
lifting of import restrictions as part of the country’s
commitment as a member of the World Trade Organization.
Under E.O. 313, 170 tariff lines were subject to
tariff quotas.
E.O.
461 which took effect on January 4, 1998 and provided for a tariff of 3%
on imported crude oil and refined petroleum products
concluded TRP-III.
10.
What was the impact of TRP-III on the protection structure?
A.
On Nominal Tariffs
TRP-III followed the basic 3%-10%-20%-30% tariff structure
first set in place under the second tariff reform program.
Thus, more than 95% of total tariff lines were dutiable at
any of these four (4) tariff levels from 1995 to 1997.
With
respect to tariff averages, the average nominal tariff declined
from 19.72% in 1994 to 13.43% in 1997.
The average tariffs for the agricultural sector were
consistently above the overall tariff average reflecting the
higher tariff protection accorded sensitive agricultural products.
B.
On Effective Protection Rates
Following
the tariff restructuring, effective protection levels not
only fell but the bias against the
agricultural/fishery/forestry sectors relative to the
manufacturing sector was also reduced.
11.
Why was TRP-IV undertaken?
TRP-IV
was initiated by a review and
evaluation of the impact of the
pace of tariff reductions on the competitiveness of
local industries. The
review also sought to smoothen the pace of the schedule of
tariff reduction for deserving industries and correct any
remaining distortions in the tariff structure.
The
Commission adopted a tariff recalibration scheme to serve
as framework. This scheme provided for a more flexible
3%-5%-7%-10%-15%-20%-25%-30% structure in place of the
3%-10%-20%-30% structure.
Twenty-two
(22) industries identified as "Philippine
Winners" were initially targeted for re-calibration
of tariff rates. The
products covered by these industries, selected on the
basis of their global competitiveness (actual or latent),
employment, and inter-industry linkages, were: copper
products; fertilizer; motor vehicle parts and components;
iron and steel products; jewelry; electronics; ceramics;
marble products; marine products; processed foods;
petrochemical and oleochemical products; leather goods;
footwear; lumber; particle board; fiberboard; veneer and
plywood; textiles and garments; basketwork; seaweeds and
carageenan; holiday décor; furniture; and fresh fruits.
The modified tariff schedules for these items were
implemented by E.O. 465 which took effect on
January 22,
1998.
Following
the issuance of E.O. 465, it was also considered necessary
to evaluate the tariff schedules of residual items to
achieve a total and comprehensive phased tariff reduction
program. E.O.
486, which took effect on
July 10, 1998, contains the re-calibrated tariff
schedules for the residual items.
It also reduced to 144 the number of tariff lines
subject to tariff quotas.
12.
What is the current status of TRP-IV?
Government's
intent to reform the tariff structure was realized with
the issuance of E.O. 334 which provides the tariff
schedule from 2001 to 2004 for all products (excluding
certain meat products falling under HS Chapter 2, rice,
corn and sugar whose individual tariff schedules have yet
to be determined). Under
this E.O., a tariff band of 0% - 5% will be implemented by
2004 (except for a limited range of sensitive agricultural
products with a 2004 tariff rate of 30%).
With
the effectivity of E.O. 334 on
January 1, 2001, the average nominal tariff will
decline from approximately 10% in 1999 to 5% in 2004 (Table
1). Average
tariffs for the agricultural, fishery and forestry sectors
are higher due mainly to the greater tariff protection
accorded sensitive agricultural products.
From
2001 to 2003, more than half of total tariff lines will be
dutiable at 3% and below.
In 2004, nearly 97% of all tariff lines will have
duties falling within the target tariff range (Table 2).
With
respect to effective protection, the
agricultural/fishery/forestry sectors now enjoy greater
protection from the tariff system vis-a-vis the
traditionally-favored manufacturing sector (Table 3).
13.
What appeals procedure is available to parties interested
in requesting a modification of tariffs?
Petitions
for tariff modification may be filed by interested parties
under Section 401 of the TCC, as amended.
The Tariff Commission conducts investigations on
the petitions it receives during which public hearings are
held to afford interested parties reasonable opportunities
to present their views.
The Commission submits its findings and
recommendations to the National Economic and Development
Authority (NEDA) which then schedules these for
deliberation by the Tariff and Related Matters (TRM)
Technical and Cabinet Committees.
Final approval is granted by the NEDA Board after
which the Commission prepares the implementing Executive
Order.
TABLE 1
Average Nominal Tariffs: 1997
- 2004
(in percent)
